-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NSdJpXpEOdRX4jUOWm3qdKFdcZzaPjy3pkAkFwPAnvBanabalMdUrQQWu+v4qXJB 3tPKaShR6ZGQOPUiQCCvKQ== 0001163842-04-000027.txt : 20040506 0001163842-04-000027.hdr.sgml : 20040506 20040506145250 ACCESSION NUMBER: 0001163842-04-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040505 FILED AS OF DATE: 20040506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEON INTERNATIONAL CORP CENTRAL INDEX KEY: 0001163842 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 133880755 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31258 FILM NUMBER: 04784734 BUSINESS ADDRESS: STREET 1: 3211 JERMANTOWNE ROAD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030-2801 BUSINESS PHONE: (703) 246-0200 MAIL ADDRESS: STREET 1: 3211 JERMANTOWN ROAD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030-2801 FORMER COMPANY: FORMER CONFORMED NAME: AZIMUTH TECHNOLOGIES INC DATE OF NAME CHANGE: 20011219 10-Q 1 anteon10q.txt MARCH 2004 10Q Form 10-Q for ANTEON INTERNATIONAL CORPORATION filed on May 6, 2004 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-31258 ANTEON INTERNATIONAL CORPORATION --------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3880755 ----------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3211 Jermantown Road, Fairfax, Virginia 22030-2801 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) (703) 246-0200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ------------------------------------------------------------ (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ] As of the close of business on April 30, 2004, there were 35,558,712 outstanding shares of the registrant's common stock, par value $0.01 per share. CONTENTS PAGE PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2004 AND DECEMBER 31, 2003 1 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 2 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 3 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21 ITEM 4. CONTROLS AND PROCEDURES 21 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS 22 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES 22 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22 ITEM 5. OTHER INFORMATION 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22 i
PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A Delaware Corporation) CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) March 31, 2004 December 31, (Unaudited) 2003 ------------------ ----------------- ASSETS Current assets: Cash and cash equivalents $ 2,229 $ 2,088 Accounts receivable, net 243,997 222,937 Prepaid expenses and other current assets 15,657 17,925 Deferred tax assets, net 1,657 1,641 ------------------ ---------------- Total current assets 263,540 244,591 Property and equipment, net 12,391 12,759 Goodwill 212,205 212,205 Intangible and other assets, net 9,005 9,725 ------------------ ---------------- Total assets $ 497,141 $ 479,280 ================== ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Term Loan B, current portion $ 1,500 $ 1,500 Subordinated notes payable, current portion 2,500 2,500 Obligations under capital leases, current portion 341 341 Accounts payable 38,175 36,793 Accrued expenses 83,459 85,468 Deferred compensation obligation 457 -- Due to related party 47 48 Income tax payable 10,695 641 Other current liabilities 118 230 Deferred revenue 8,395 11,783 ------------------ ---------------- Total current liabilities 145,687 139,304 Term Loan B, less current portion 148,125 148,500 Revolving facility 4,100 4,400 Senior subordinated notes payable, less current portion 1,876 1,876 Obligations under capital leases, less current portion 383 465 Noncurrent deferred tax liabilities, net 7,614 10,017 Other long term liabilities 62 16 ------------------ ---------------- Total liabilities 307,847 304,578 Minority interest in subsidiaries 215 210 Stockholders' equity: Preferred stock, $0.01 par value; 15,000,000 shares authorized, none issued and outstanding as of March 31, 2004 and December 31, 2003 -- -- Common stock, $0.01 par value; 175,000,000 shares authorized, 35,520,113 and 35,354,996 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively. 355 354 Additional paid-in capital 117,019 115,863 Accumulated other comprehensive income (loss) 24 (72) Retained earnings 71,681 58,347 ------------------ ---------------- Total stockholders' equity 189,079 174,492 ------------------ ---------------- Total liabilities and stockholders' equity $ 497,141 $ 479,280 ================== ================ See accompanying notes to unaudited condensed consolidated financial statements.
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ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A Delaware Corporation) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) For the three months ended March 31, --------------------------------------- 2004 2003 ------------------ ---------------- Revenues $ 288,150 $ 228,591 Costs of revenues 248,059 197,176 -------------- ------------- Gross profit 40,091 31,415 -------------- ------------- Operating expenses: General and administrative expenses 15,875 12,972 Amortization of intangible assets 679 477 -------------- ------------- Total operating expenses 16,554 13,449 -------------- ------------- Operating income 23,537 17,966 Other income 2 -- Interest expense, net of interest income of $78 and $71, respectively 1,794 3,191 Minority interest in earnings of subsidiaries (5) (12) -------------- ------------- Income before provision for income taxes 21,740 14,763 Provision for income taxes 8,406 5,688 -------------- ------------- Net income $ 13,334 $ 9,075 ============== ============= Basic earnings per common share: $ 0.38 $ 0.26 ============== ============= Basic weighted average shares outstanding 35,448,152 34,459,738 Diluted earnings per common share: $ 0.36 $ 0.25 ============== ============= Diluted weighted average shares outstanding 37,147,368 36,629,971 See accompanying notes to unaudited condensed consolidated financial statements.
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ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A Delaware Corporation) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the three months ended March 31, --------------------------------------- 2004 2003 --------------- ----------------- OPERATING ACTIVITIES: Net income $ 13,334 $ 9,075 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 1,053 892 Amortization of noncompete agreement 42 -- Other intangibles amortization 637 477 Amortization of deferred financing fees 184 348 Loss on disposals of property and equipment -- 1 Deferred income taxes (877) (1,156) Minority interest in earnings of subsidiaries 5 12 Changes in assets and liabilities (13,829) 3,712 ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 549 13,361 ------------- ------------ NET CASH USED FOR INVESTING ACTIVITIES: Purchases of property, equipment and other assets (685) (653) ------------- ------------ FINANCING ACTIVITIES: Principal payments on bank and other notes payable -- (12) Deferred financing fees (75) (64) Principal payments on Term Loan A -- (950) Principal payments on Term Loan B (375) -- Proceeds from revolving facility 254,900 152,100 Principal payments on revolving facility (255,200) (159,100) Principal payments under capital lease obligations (82) -- Proceeds from issuance of common stock 1,109 460 ------------- ------------ NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 277 (7,566) ------------- ------------ CASH AND CASH EQUIVALENTS: Net increase in cash and cash equivalents 141 5,142 Cash and cash equivalents, beginning of period 2,088 4,266 ------------- ------------ Cash and cash equivalents, end of period $ 2,229 $ 9,408 ============= ============ Supplemental disclosure of cash flow information: Interest paid $ 1,689 $ 566 ============= ============ Income taxes paid $ 716 $ 2,396 ============= ============ See accompanying notes to unaudited condensed consolidated financial statements.
3 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A Delaware Corporation) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004 AND 2003 (1) Basis of Presentation The information furnished in the accompanying Unaudited Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Unaudited Condensed Consolidated Statements of Cash Flows have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of such information. The operating results for the three months ended March 31, 2004 may not be indicative of the results of operations for the year ending December 31, 2004, or any future period. This financial information should be read in conjunction with the Company's December 31, 2003 audited consolidated financial statements and footnotes thereto, included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission by the Company on March 8, 2004 and Amendment No. 1 to the Annual Report on Form 10-K/A filed on March 11, 2004. (2) Organization and Business Anteon International Corporation, a Delaware Corporation, "Anteon" or the "Company," and its subsidiaries provide professional information technology solutions and systems engineering and integration services to government clients. The Company designs, integrates, maintains and upgrades information systems for national defense, intelligence, emergency response and other government missions. The Company also provides many of its clients with the systems analysis, integration and program management skills necessary to manage their mission systems development and operations. The Company is subject to all of the risks associated with conducting business with the U.S. federal government, including the risk of contract termination for the convenience of the government. In addition, government funding continues to be dependent on congressional approval of program level funding and on contracting agency approval for the Company's work. The extent to which the Company's existing contracts will be funded in the future cannot be determined. (3) Acquisition of Information Spectrum, Inc. On May 23, 2003, the Company purchased all of the outstanding stock of Information Spectrum, Inc. ("ISI"), a provider of credential card technologies, military logistics and training systems, based in Annandale, Virginia, for a total purchase price of approximately $91.6 million, excluding transactions costs of approximately $737,000. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations. The following unaudited pro forma summary presents consolidated information as if the acquisition of ISI had occurred as of January 1, 2003. This pro forma summary is provided for information purposes only and is based on historical information that does not necessarily reflect actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined entities (in thousands except for share data): For the three months ended March 31, 2003 ------------------- Total revenues $ 261,012 Total expenses 251,410 ------------- Net income $ 9,602 ============= Basic earnings per common share $ 0.28 ============= Diluted earnings per common share $ 0.26 ============= 4 (4) Accounting for Stock-Based Compensation The Company accounts for employee stock-based compensation plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, or "APB No. 25," Accounting for Stock Issued to Employees. The Company has an employee stock option plan. Compensation expense for stock options granted to employees is recognized based on the difference, if any, between the fair value of the Company's common stock and the exercise price of the option at the date of grant. The Company discloses the pro forma effect on net income (loss) as if the fair value based method of accounting as defined in Financial Accounting Standards No. 123, or "SFAS No. 123," Accounting for Stock-based Compensation had been applied. The Company accounts for stock options granted to non-employees using the fair value method of accounting as prescribed by SFAS No. 123. Stock options and related compensation expense on stock options granted to non-employees are not significant. The following table illustrates the effect on net income and earnings per share for the three months ended March 31, 2004 and 2003 as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:
2004 2003 ------------ ----------- (in thousands, except per share data) Net income, as reported $ 13,334 $ 9,075 Add: stock-based compensation recorded 1 -- Deduct: total stock-based compensation expense determined under the fair value method, net of tax 1,073 818 ------------ ----------- Pro forma net income $ 12,262 $ 8,257 Earnings per share: Basic-as reported $ 0.38 $ 0.26 ============ =========== Basic-pro forma $ 0.35 $ 0.24 ============ =========== Diluted-as reported $ 0.36 $ 0.25 ============ =========== Diluted-pro forma $ 0.33 $ 0.23 ============ ===========
(5) Comprehensive Income (Loss) Comprehensive income (loss) for the three months ended March 31, 2004 and 2003 was approximately $13.4 million and $9.1 million, respectively. Other comprehensive income (loss) for the three months ended March 31, 2004 and 2003 includes foreign currency translation gains (losses) of $27,000 and ($32,000), respectively, and increases in the fair value of interest rate swaps of $69,000 and $62,000, net of tax. 5 (6) Computation of Earnings Per Share
Three months ended March 31, 2004 -------------------------------------------------------------------------------- Income Weighted average shares Per Share (Numerator) (Denominator) Amount (in thousands,except share and per share data) Basic earnings per share: Net income $ 13,334 35,448,152 $ 0.38 =========== =========== Dilutive earnings per share: Stock options -- 1,699,216 -- Diluted earnings per share: Net income $ 13,334 37,147,368 $ 0.36 =========== ===========
Three months ended March 31, 2003 -------------------------------------------------------------------------------- Income Weighted average shares Per Share (Numerator) (Denominator) Amount (in thousands, except share and per share data) Basic earnings per share: Net income $ 9,075 34,459,738 $ 0.26 =========== =========== Dilutive earnings per share: Stock options -- 2,170,233 -- Diluted earnings per share: Net income $ 9,075 36,629,971 $ 0.25 =========== ===========
6 (7) Domestic Subsidiaries Summarized Financial Information Under the terms of the Company's Credit Facility, the Company's wholly owned domestic subsidiaries (the "Guarantor Subsidiaries") are guarantors of the Company's Credit Facility. Such guarantees are full, unconditional, joint and several. Separate unaudited condensed financial statements of the Guarantor Subsidiaries are not presented because the Company's management has determined that they would not be material to investors. The non-guarantor subsidiaries are the Company's foreign subsidiaries. The following supplemental financial information sets forth, on a combined basis, unaudited condensed consolidated balance sheets, statements of operations and statements of cash flows information for the Guarantor Subsidiaries, the Company's non-guarantor subsidiaries and for the Company.
For the three months ended March 31, 2004 ----------------------------------------------------------------------------------------- Consolidated Unaudited Condensed Consolidated Anteon Anteon Balance Sheets International Guarantor Non-Guarantor Elimination International Corporation Subsidiaries Subsidiaries Entries Corporation ----------- ------------ ------------ --------- ------------ (in thousands) Cash and cash equivalents $ (9) $ 1,048 $ 1,190 $ -- $ 2,229 Accounts receivable, net -- 243,221 776 -- 243,997 Other current assets 439 26,771 242 (10,138) 17,314 Property and equipment, net 1,871 10,417 103 -- 12,391 Due from parent (184,478) 184,503 (25) -- -- Investment in and advances to subsidiaries 30,780 (24,544) -- (6,236) -- Goodwill 168,532 43,673 -- -- 212,205 Intangible and other assets, net 72,512 4,493 -- (68,000) 9,005 -------------- ------------- ---------- ----------- ----------- Total assets $ 89,647 $ 489,582 $ 2,286 $ (84,374) $ 497,141 ============== ============= ========== =========== =========== Indebtedness $ 4,376 $ 221,725 $ -- $ (68,000) $ 158,101 Accounts payable 664 37,009 502 -- 38,175 Accrued expenses and other current liabilities 3,191 91,557 369 -- 95,117 Deferred revenue 10,138 8,045 350 (10,138) 8,395 Other long-term liabilities -- 8,059 -- -- 8,059 -------------- ------------- ---------- ----------- ----------- Total liabilities 18,369 366,395 1,221 (78,138) 307,847 Minority interest in subsidiaries -- -- 215 -- 215 Total stockholders' equity (deficit) 71,278 123,187 850 (6,236) 189,079 -------------- ------------- ---------- ----------- ----------- Total liabilities and stockholders' equity $ 89,647 $ 489,582 $ 2,286 $ (84,374) $ 497,141 ============== ============= ========== =========== =========== (deficit)
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For the three months ended March 31, 2004 ----------------------------------------------------------------------------------------- Consolidated Unaudited Condensed Consolidated Anteon Anteon Statements of Operations International Guarantor Non-Guarantor Elimination International Corporation Subsidiaries Subsidiaries Entries Corporation ---------------- --------------- ---------------- --------------- ---------------- (in thousands) Revenues $ (2) $ 287,102 $ 1,164 $ (114) $ 288,150 Costs of revenues (1) 247,057 1,117 (114) 248,059 ------------ ------------ ----------- ------------ ------------- Gross profit (1) 40,045 47 -- 40,091 Total operating expenses 956 25,086 18 (9,506) 16,554 ------------ ------------ ----------- ------------ ------------- Operating income (loss) (957) 14,959 29 9,506 23,537 Other income (expense), net 3,163 6,345 -- (9,506) 2 Interest expense (income), net (405) 2,207 (8) -- 1,794 Minority interest in earnings of -- -- (5) -- (5) subsidiaries ------------ ------------ ----------- ------------ ------------- Income before provision for income taxes 2,611 19,097 32 -- 21,740 Provision for income taxes 271 8,123 12 -- 8,406 ------------ ------------ ----------- ------------ ------------- Net income $ 2,340 $ 10,974 $ 20 $ -- $ 13,334 ============ ============ =========== ============ =============
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For the three months ended March 31, 2004 --------------------------------------------------------------------------- Unaudited Condensed Consolidated Consolidated Statements of Cash Flows Anteon Anteon International Guarantor Non-Guarantor International Corporation Subsidiaries Subsidiaries Corporation ---------------- ---------------- ----------------- ---------------- (in thousands) Cash flows from operating activities: Net income $ 2,340 $ 10,974 $ 20 $ 13,334 Adjustments to reconcile in net income to net cash provided by (used for) operating activities Depreciation and amortization of property and equipment 168 875 10 1,053 Amortization of noncompete agreement -- 42 -- 42 Other intangibles amortization 637 -- -- 637 Amortization of deferred financing fees 33 151 -- 184 Deferred income taxes -- (877) -- (877) Minority interest in earnings of subsidiaries -- -- 5 5 Changes in assets and liabilities (4,373) (8,975) (481) (13,829) ----------- ----------- ------------ ----------- Net cash provided by (used for) operating activities (1,195) 2,190 (446) 549 ----------- ----------- ------------ ----------- Net cash used for investing activities: Purchases of property and equipment (15) (646) (24) (685) ----------- ----------- ------------ ----------- Cash flow from financing activities: Deferred financing fees 101 (176) -- (75) Principal payments on Term Loan B -- (375) -- (375) Proceeds from revolving facility -- 254,900 -- 254,900 Principal payments on revolving facility -- (255,200) -- (255,200) Principal payments under capital lease obligations -- (82) -- (82) Proceeds from issuance of common stock 1,109 -- -- 1,109 ----------- ----------- ------------ ----------- Net cash provided by (used for) financing activities 1,210 (933) -- 277 ----------- ----------- ------------ ----------- Net increase in cash and cash equivalents -- 611 (470) 141 Cash and cash equivalents, beginning of period (9) 437 1,660 2,088 ----------- ----------- ----------- ----------- Cash and cash equivalents, end of period $ (9) $ 1,048 $ 1,190 $ 2,229 =========== =========== ============ ===========
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For the three months ended March 31, 2003 -------------------------------------------------------------------------------------- Consolidated Anteon Anteon Unaudited Condensed Consolidated International Guarantor Non-Guarantor Elimination International Statements of Operations Corporation Subsidiaries Subsidiaries Entries Corporation ---------------- --------------- ---------------- ------------ --------------- (in thousands) Revenues $ -- $ 226,622 $ 2,043 $ (74) $ 228,591 Costs of revenues 4 195,482 1,764 (74) 197,176 ---------- ---------- --------- -------- ----------- Gross profit (4) 31,140 279 -- 31,415 Total operating expenses 780 19,849 196 (7,376) 13,449 ---------- ---------- --------- -------- ----------- Operating income (loss) (784) 11,291 83 7,376 17,966 Other income (expenses), net 2,354 5,022 -- (7,376) -- Interest expense (income), net 1,247 1,948 (4) -- 3,191 Minority interest in earnings of subsidiaries -- -- (12) -- (12) ---------- ---------- --------- -------- ----------- Income before provision for income taxes 323 14,365 75 -- 14,763 Provision for (benefit from) income taxes (782) 6,443 27 -- 5,688 ---------- ---------- --------- -------- ----------- Net income $ 1,105 $ 7,922 $ 48 $ -- $ 9,075 ========== ========== ========= ======== ===========
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For the three months ended March 31, 2003 --------------------------------------------------------------------------- Unaudited Condensed Consolidated Consolidated Statements of Cash Flows Anteon Anteon International Guarantor Non-Guarantor International Corporation Subsidiaries Subsidiaries Corporation ----------------- ---------------- ------------------- ---------------- (in thousands) Cash flows from operating activities: Net income $ 1,105 $ 7,922 $ 48 $ 9,075 Adjustments to reconcile change in net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 208 674 10 892 Other intangibles amortization 422 55 -- 477 Amortization of deferred financing fees 318 30 -- 348 Loss on disposals of property and equipment -- 1 -- 1 Deferred income taxes -- (1,156) -- (1,156) Minority interest in earnings of subsidiaries -- -- 12 12 Changes in assets and liabilities (1,162) 4,797 77 3,712 ----------- ----------- ------------- ----------- Net cash provided by operating activities 891 12,323 147 13,361 ----------- ----------- ------------- ----------- Net cash used for investing activities: Purchases of property and equipment (401) (240) (12) (653) ----------- ----------- ------------- ----------- Cash flow from financing activities: Principal payments on bank and other notes payable -- (12) -- (12) Payment of credit facility amendment fee -- (64) -- (64) Principal payments on Term Loan A (950) -- -- (950) Proceeds from revolving facility -- 152,100 -- 152,100 Principal payments on revolving facility -- (159,100) -- (159,100) Proceeds from issuance of common stock 460 -- -- 460 ----------- ----------- ------------- ----------- Net cash used for financing activities (490) (7,076) -- (7,566) ----------- ----------- ------------- ----------- Net increase in cash and cash equivalents -- 5,007 135 5,142 Cash and cash equivalents, beginning of period (17) 3,659 624 4,266 ----------- ----------- ------------- ----------- Cash and cash equivalents, end of period $ (17) $ 8,666 $ 759 $ 9,408 =========== =========== ============= ===========
11 (8) Segment Information Although the Company is organized by strategic business unit, the Company considers each of its business units to have similar economic characteristics, provide similar types of services and have a similar customer base. Accordingly, the Company's reportable segment aggregates the operations of all of the Company's strategic business units. (9) Interest Rate Swap Agreements Approximately $118,000 of losses related to the interest rate swaps are expected to be reclassified into remaining interest expense as a yield adjustment of the hedged debt obligation through maturity of June 30, 2004. As of March 31, 2004, the fair value of the Company's interest swap agreements, with a notional value of $10.0 million, resulted in a liability of approximately $118,000, which has been included in other current liabilities in the accompanying unaudited condensed consolidated balance sheet. (10) Supplemental Retirement Savings Plan Effective January 1, 2004, the Company implemented a Supplemental Retirement Savings Plan (the "Plan") that permits eligible employees and directors to defer all or a portion of their annual cash compensation. The Company also filed a Registration Statement on Form S-8 with the Securities and Exchange Commission ("SEC") to register the participation interests under the Plan. The assets of the Plan are held in a trust to which contributions are made by the Company based on amounts elected to be deferred by the Plan participants. The Plan is treated as unfunded for tax purposes and its assets are subject to the general claims of the Company's creditors. In order to provide for an accumulation of assets comparable to the contractual liabilities accruing under the Plan, the Company may direct the trustee of the Plan to invest the assets to correspond to the hypothetical investment choices made by the Plan participants. The Company records both the assets and obligations related to amounts deferred under the Plan. Each reporting period, the assets, which have been classified as trading securities, and obligations, are adjusted to fair market value, with gains (losses) on the assets included in other income (expense) and corresponding adjustments to the obligations recorded as compensation expense. As of March 31, 2004, the deferred compensation obligation was approximately $457,000. For the quarter ended March 31, 2004, the adjustments to fair market value were not significant. (11) Employee Stock Purchase Plan Effective April 1, 2004, the Company implemented an Employee Stock Purchase Plan ("ESPP") to offer eligible employees the opportunity to purchase the Company's common stock at a discount from the market price as reported on the New York Stock Exchange. Eligible employees may authorize the Company to deduct a specified portion of their compensation each payroll period for each quarterly offering period. The accumulated payroll deductions will be used by the Company to provide for the purchase by the ESPP administrator of Company common stock on the open market for delivery to ESPP participants. The ESPP provides that the per share purchase price discount established by the Compensation Committee of the Board may be no greater than 15% of the fair market value of a share of Company common stock on the last day of each quarterly offering period. The Compensation Committee has initially set the purchase price discount at 5% of the Company stock's fair market value. Under the ESPP, employees are limited to the purchase of shares of the Company's common stock having a fair market value no greater than $25,000 during any calendar year, as determined on the date of purchase. The Company has filed a Registration Statement on Form S-8 with the SEC to register 1.2 million shares of the Company's common stock under the ESPP. (12) Legal Proceedings The Company is involved in various legal proceedings in the ordinary course of business. The Company cannot predict the ultimate outcome of these matters, but does not believe that they will have a material impact on its financial position or results of operations. (13) New Accounting Pronouncements In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106". SFAS No. 132 (revised 2003) required additional disclosures about assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS No. 132 is effective for fiscal years ending after December 15, 2003. The adoption of SFAS no. 132 did not have an impact on the Company's consolidated financial statements. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events or our future performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our and our industry's actual results, levels of activity, performance or achievements to be materially different from any results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology like "may", "will", "should", "expects", "plans", "projects", anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. Such forward-looking statements include, but are not limited to: o total estimated remaining contract value; o our expectations regarding the U.S. federal government's procurement budgets and reliance on outsourcing of services; and o our financial condition and liquidity, as well as future cash flows and earnings. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this quarterly report to conform these statements to actual results and do not intend to do so. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the following: o changes in U.S. federal government procurement laws, regulations, policies, and budgets; o the number and type of contracts and task orders awarded to us; o the integration of acquisitions without disruption to our other business activities; o changes in general economic and business conditions; o technological changes; o the ability to attract and retain qualified personnel; o competition; o and our ability to retain our contracts during any rebidding process. GENERAL General We are a leading provider of information technology solutions and systems engineering and integration services to U.S. federal government clients as measured by revenue. We design, integrate, maintain and upgrade state-of-the-art information systems for national defense, intelligence, emergency response and other high priority government missions. We also provide many of our government clients with the systems analysis, integration and program management skills necessary to manage their mission systems development and operations. We have a broad client and contract base and a diverse contract mix. We currently serve over 1,000 U.S. federal government clients in more than 50 government agencies, as well as state and foreign governments. For the three months ended March 31, 2004, approximately 90% of our revenue was derived from contracts with the Department of Defense, or "DOD," Department of Homeland Security, or "DHS," and intelligence agencies, and approximately 7% from civilian agencies of the U.S. federal government. For the three months ended March 31, 2004, approximately 88% of our revenue was from contracts where we were the lead, or "prime," contractor. Our diverse contract base has approximately 500 active contracts and more than 4,000 active task orders. For the three months ended March 31, 2004, our largest contract or task order accounted for approximately 8% of our revenues. 13 Description of Critical Accounting Policies Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to uncollected accounts receivable, other contingent liabilities, revenue recognition, goodwill and other intangible assets. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable at the time the estimates are made. Actual results may differ from these estimates under different assumptions or conditions. Management believes that our critical accounting policies which require more significant judgments and estimates in the preparation of our unaudited condensed consolidated financial statements are revenue recognition, costs of revenues, goodwill impairment, long-lived assets and identifiable intangible asset impairment and business combinations. Revenue Recognition During the three months ended March 31, 2004, we estimate that approximately 99% of our revenues were derived from services and approximately 1% from product sales. Services are performed under contracts that may be categorized into three primary types: time and materials, cost-plus reimbursement and firm fixed price. Revenues for time and materials contracts are recognized as time is spent at hourly rates, which are negotiated with the customer. Time and materials contracts are typically more profitable than cost-plus contracts because of our ability to negotiate rates and manage costs on those contracts. Revenues are recognized under cost-plus contracts on the basis of direct and indirect costs incurred plus a negotiated profit calculated as a percentage of costs or as performance-based award fee. Cost-plus type contracts provide relatively less risk than other contract types because we are reimbursed for all direct costs and certain indirect costs, such as overhead and general and administrative expenses, and are paid a fee for work performed. For cost-plus award fee type contracts, we recognize the expected fee to be awarded by the customer at the time such fee can be reasonably estimated, based on factors such as our prior award experience and communications with the customer regarding our performance, including any interim performance evaluations rendered by the customer. Revenues are recognized under substantially all fixed price contracts based on the percentage-of-completion basis, using the cost-to-cost method for all services provided. For non-service related fixed price contracts, revenues are recognized as units are delivered (the units-of-delivery method). In addition, we evaluate our contracts for multiple deliverables which may require the segmentation of each deliverable into separate accounting units for proper revenue recognition. We recognize revenues under our U.S. federal government contracts when a contract is executed, the contract price is fixed and determinable, delivery of the services or products has occurred, the contract is funded and collectibility of the contract price is considered probable. Our contracts with agencies of the U.S. federal government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the term of the contract as the services are provided. From time to time, we may proceed with work based on customer direction pending finalization and signing of contractual funding documents. We have an internal process for approving any such work. All revenue recognition is deferred during periods in which funding is not received. Costs incurred during such periods are deferred if the receipt of funding is assessed as probable. In evaluating the probability of funding being received, we consider our previous experiences with the customer, communications with the customer regarding funding status, and our knowledge of available funding for the contract or program. If funding is not assessed as probable, costs are expensed as they are incurred. Historically, we have not recorded any significant write-offs because funding was not ultimately received. We recognize revenues under our U.S. federal government contracts based on allowable contract costs, as mandated by the U.S. federal government's cost accounting standards. The costs we incur under U.S. federal government contracts are subject to regulation and audit by certain agencies of the U.S. federal government. Historically, contract cost disallowances resulting from government audits have not been significant. We may be exposed to variations in profitability, including potential losses, if we encounter variances from estimated fees earned under award fee contracts and estimated costs under fixed price contracts. Contract revenue recognition inherently involves estimation. Examples of such estimates include the level of effort needed to accomplish the tasks under the contract, the cost of those efforts, and the continual assessment of our progress toward the completion of the contract. From time to time, circumstances may arise which require us to revise our estimated total revenues or costs. Typically, these revisions relate to contractual changes involving our services. To the extent that a revised estimate affects contract revenue or profit previously recognized, we record the cumulative effect of the revision in the period in which it becomes known. In addition, the full amount of an anticipated loss on any type of contract is recognized in the period in which it becomes known. 14 We generally do not pursue fixed price software development work that may create material financial risk. We do, however, provide services under fixed price labor hour and fixed price level of effort contracts, which represent similar levels of risk as time and materials contracts. Our contract mix was approximately 39% time and materials, 33% cost-plus and 28% fixed price (a substantial majority of which are firm fixed price level of effort) during the three months ended March 31, 2004. The contract mix can change over time depending on contract awards and acquisitions. Under cost-plus contracts with the U.S. federal government, operating profits are statutorily limited to 15% but typically range from 5% to 7%. Under fixed price and time and materials contracts, margins are not subject to statutory limits. However, the U.S. federal government's objective in negotiating such contracts is to seldom allow for operating profits in excess of 15% and, due to competitive pressures, operating profits on such contracts are often less than 10%. We maintain reserves for uncollectible accounts receivable which may arise in the normal course of business. Historically, we have not had significant write-offs of uncollectible accounts receivable. However, we do perform work on many contracts and task orders, where on occasion, issues may arise, which would lead to accounts receivable not being fully collected. Costs of Revenues Our costs are categorized as either direct or indirect costs. Direct costs are those that can be identified with and allocated to specific contracts and tasks. They include labor, fringe (vacation time, medical/dental, 401K plan matching contribution, tuition assistance, employee welfare, worker's compensation and other benefits), subcontractor costs, consultant fees, travel expenses and materials. Indirect costs are either overhead or general and administrative expenses. Indirect costs cannot be identified with specific contracts or tasks, and to the extent that they are allowable, they are allocated to contracts and tasks using appropriate government-approved methodologies. Costs determined to be unallowable under the Federal Acquisition Regulations cannot be allocated to projects. Our principal unallowable costs are interest expense, amortization expense for separately identified intangibles from acquisitions, and certain general and administrative expenses. A key element to our success has been our ability to control indirect and unallowable costs, enabling us to profitably execute our existing contracts and successfully bid for new contracts. In addition, with the acquisition of new companies, we have been able to manage our indirect costs and improve operating margins by integrating the indirect cost structures and realizing opportunities for cost synergies. Costs of revenues are considered to be a critical accounting policy because of the direct relationship to revenue recognized. Goodwill Impairment Goodwill relating to our acquisitions represents the excess of cost over the fair value of net tangible and separately identifiable intangible assets acquired, and has a carrying amount of approximately $212.2 million as of March 31, 2004 and December 31, 2003. Effective January 1, 2002, we adopted SFAS No. 142, and no longer amortize goodwill, but rather test for impairment of our goodwill at least annually using a fair value approach. We completed our annual impairment analysis as of September 30, 2003, noting no indications of impairment for any of our reporting units. As of March 31, 2004, there have been no events or circumstances that would indicate an impairment test should be performed sooner than our planned annual test as of September 30, 2004. Long-Lived Assets and Identifiable Intangible Asset Impairment The net carrying amount of long-lived assets and identifiable intangible assets was approximately $16.9 million and $17.9 million at March 31, 2004 and December 31, 2003, respectively. Long-lived assets and identifiable intangible assets, excluding goodwill, are evaluated for impairment when events occur that suggest that such assets may be impaired. Such events could include, but are not limited to, the loss of a significant customer or contract, decreases in U.S. federal government appropriations or funding of certain programs, or other similar events. None of these events occurred for the three months ended March 31, 2004. We determine if an impairment has occurred based on a comparison of the carrying amount of such assets to the future undiscounted net cash flows, excluding charges for interest. If considered impaired, the impairment is measured as the amount by which the carrying value of the assets exceeds their estimated fair value, as determined by an analysis of discounted cash flows using an interest rate based on our cost of capital and the related risks of recoverability. In evaluating impairment, we consider, among other things, our ability to sustain our current financial performance on contracts and tasks, our access to and penetration of new markets and customers and the duration of, and estimated amounts from, our contracts. Any uncertainty of future financial performance is dependent on the ability to maintain our customers and the continued funding of our contracts and tasks by the U.S. federal government. Over the past four years, we have been able to win the majority of our contracts that have been recompeted. In addition, we have been able to sustain financial performance through indirect cost savings from our acquisitions, which have generally resulted in either maintaining or improving margins on our contracts and tasks. If we are required to record an impairment charge in the future, it would have an adverse impact on our results of operations. 15 Business Combinations We apply the provisions of SFAS No. 141, Business Combinations, whereby the net tangible and separately identifiable intangible assets acquired and liabilities assumed are recognized at their estimated fair market values at the acquisition date. The purchase price in excess of the estimated fair market value of the net tangible and separately identifiable intangible assets acquired represents goodwill. The allocation of the purchase price related to our business combinations involves significant estimates and management judgment that may be adjusted during the allocation period, but in no case beyond one year from the acquisition date. Costs incurred related to successful business combinations are capitalized as costs of business combinations, while costs incurred by us for unsuccessful or terminated acquisition opportunities are expensed when we determine that such opportunities will no longer be pursued. Costs incurred related to probable business combinations are deferred. On May 23, 2003, the Company purchased all of the outstanding stock of Information Spectrum, Inc. ("ISI"), a provider of credential card technologies, military logistics and training systems, based in Annandale, Virginia, for a total purchase price of approximately $91.6 million, excluding transactions costs of approximately $737,000. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations. Statements of Operations The following is a description of certain line items from our consolidated statements of operations. Revenues for the three months ended March 31, 2003 do not include ISI. Costs of revenues include direct labor and fringe costs for program personnel and direct expenses incurred to complete contracts and task orders. Costs of revenues also include depreciation, overhead, and other direct contract costs, which include subcontract work, consultant fees, and materials. Overhead consists of indirect costs relating to operational managers, rent/facilities, administration, travel and other expenses. General and administrative expenses are primarily for corporate functions such as management, legal, finance and accounting, contracts and administration, human resources, company management information systems and depreciation, and also include other unallowable costs such as marketing, certain legal fees and reserves. Amortization expense relates to intangible assets from our acquisitions. These intangible assets consist of a noncompete agreement, contract backlog and contracts and related customer relationships acquired as part of our acquisitions. Interest expense is primarily related to our Senior Subordinated Notes due 2009, or the "12% Notes," our term loans and Revolving Credit Facility, and other miscellaneous interest costs. Other income represents the gains earned on the assets held under our Supplemental Retirement Savings Plan. Funded Backlog and Total Estimated Remaining Contract Value Each year a significant portion of our revenue is derived from existing contracts with our government clients, and a portion of the revenue represents work related to maintenance, upgrade or replacement of systems under contracts or projects for which we are the incumbent provider. Proper management of contracts is critical to our overall financial success and we believe that effective management of costs makes us competitive on price. Historically, we believe that our demonstrated performance record and service excellence have enabled us to maintain our position as an incumbent service provider on more than 90% of our contracts that have been recompeted. We increased our total estimated remaining contract value by approximately $200.0 million, from $5.6 billion as of December 31, 2003, to $5.8 billion at March 31, 2004. Funded backlog increased approximately $10.4 million to $671.5 million at March 31, 2004, from $661.1 million as of December 31, 2003. Our contracts have a weighted-average term of approximately eight years. Our total estimated remaining contract value represents the aggregate contract revenue we estimate will be earned over the remaining life of our contracts. We compute the total estimated remaining contract value, including for indefinite delivery, indefinite quantity , or "IDIQ," and multiple award contracts, by calculating the three month rolling average run rate on each of these contracts and extrapolating it over the life of the contract. Funded backlog is based upon amounts actually appropriated by a customer for payment for goods and services. Because the U.S. federal government operates under annual appropriations, agencies of the U.S. federal government typically fund contracts on an incremental basis. Accordingly, the majority of the total estimated remaining contract value is not funded backlog. Our total estimated remaining contract value is based on our experience under contracts and we believe our estimates are reasonable. However, there can be no assurance that our existing contracts will result in actual revenues in any particular period or at all. These amounts could vary depending upon U.S. federal government budgets and appropriations. 16 RESULTS OF OPERATIONS The following table sets forth our results of operations based on the amounts and percentage relationship of the items listed to contract revenues during the period shown:
For the Three Months Ended March 31, 2004 2003 -------------------------- -------------------------- ($ in thousands) Revenues $ 288,150 100.0% $ 228,591 100.0% Costs of revenues 248,059 86.1 197,176 86.2 ----------------- ----------- ---------------- ---------- Gross profit 40,091 13.9 31,415 13.7 ----------------- ----------- ---------------- ---------- Operating expenses: General and administrative expenses 15,875 5.5 12,972 5.7 Amortization of intangible assets 679 0.2 477 0.2 ----------------- ----------- ---------------- ---------- Total operating expenses 16,554 5.7 13,449 5.9 ----------------- ----------- ---------------- ---------- Operating income 23,537 8.2 17,966 7.9 Other income 2 -- -- -- Interest expense, net 1,794 0.7 3,191 1.4 Minority interest in earnings of subsidiaries (5) -- (12) -- ----------------- ----------- ---------------- ---------- Income before income taxes 21,740 7.5 14,763 6.4 Provision for income taxes 8,406 2.9 5,688 2.5 ----------------- ----------- ---------------- ---------- Net income $ 13,334 4.6% $ 9,075 3.9% ================= ============= ================ ============
REVENUES For the three months ended March 31, 2004, revenues increased by $59.6 million, or 26.1%, to $288.2 million from $228.6 million for the three months ended March 31, 2003. The increase in revenues was attributable to organic growth and the acquisition of ISI. We define organic growth as the increase in revenues excluding the revenues associated with acquisitions, divestitures and closures of businesses in comparable periods. We believe that organic growth is a useful supplemental measure to revenue. Management uses organic growth as part of its evaluation of core operating results and underlying trends. For the three months ended March 31, 2004, our organic growth was 11.5%, or $26.3 million. The acquisition of ISI accounted for approximately $33.2 million of the growth for the three months ended March 31, 2004. The increase in revenue was primarily driven by an increase in employee headcount and growth in the following contracts: ANSWER, Engineering and Technical Services for Deploying Enabling Technologies, Stricom Omnibus Contract, Management Organizational and Business Services, Millenia Lite and Professional Engineering Services contract. COSTS OF REVENUES For the three months ended March 31, 2004, costs of revenues increased by $50.9 million, or 25.8%, to $248.1 million from $197.2 million for the three months ended March 31, 2003. The increase in costs of revenues was due to the corresponding growth in revenues resulting from organic growth, the acquisition of ISI and the increase in employee headcount. GENERAL AND ADMINISTRATIVE EXPENSES For the three months ended March 31, 2004, general and administrative expenses increased $2.9 million, or 22.3%, to $15.9 million from $13.0 million for the three months ended March 31, 2003. General and administrative expenses for the three months ended March 31, 2004, as a percentage of revenues, decreased to 5.5% from 5.7%. This decrease as a percentage of revenues was driven primarily by continued operational cost efficiencies achieved in connection with acquired operations and their successful integration. The dollar increase was primarily attributable to the corresponding growth in revenues. 17 AMORTIZATION For the three months ended March 31, 2004, amortization expense increased by $202,000, or 42.3%, to $679,000 from $477,000 for the three months ended March 31, 2003. The increase in amortization expense is a result of additional amortization related to intangible assets acquired in connection with the purchase of ISI and a related noncompete agreement. OPERATING INCOME For the three months ended March 31, 2004, operating income increased $5.5 million, or 31.0%, to $23.5 million from $18.0 million for the three months ended March 31, 2003. The increase in operating income is primarily a result of the corresponding increase in revenues. Operating income as a percentage of revenues increased to 8.2% for the three months ended March 31, 2004 from 7.9% for the three months ended March 31, 2003. The increase in the percentage of revenues was driven by the decline in the percentage of costs of revenues and general and administrative as a percentage of revenues. INTEREST EXPENSE, NET For the three months ended March 31, 2004, interest expense, net of interest income, decreased $1.4 million, or 43.8% to $1.8 million from $3.2 million for the three months ended March 31, 2003. The decrease in interest expense was due primarily to the repurchase of our 12% Notes and the refinancing of our Credit Facility. In December 2003, we reduced the balance of our 12% Notes to approximately $1.9 million from $75.0 million by utilizing the proceeds from the $150.0 million in the Term Loan B borrowings made under the Amended and Restated Credit Agreement of December 19, 2003, or the "2003 Amended and Restated Credit Agreement". During the three months ended March 31, 2004, the interest rate on the Term Loan B borrowings ranged from 3.11% to 3.16% compared to a range of 3.59% to 3.66% on the previous term loan for the same period in the prior year. PROVISION FOR INCOME TAXES Our effective tax rate for the three months ended March 31, 2004 was 38.7% compared with an effective tax rate of 38.5% for the three months ended March 31, 2003. The effective tax rate reflects federal and state legislative changes. LIQUIDITY AND CAPITAL RESOURCES Cash flows for the Three months Ended March 31, 2004 We generated $549,000 and $13.4 million in cash from operations for the three months ended March 31, 2004 and 2003, respectively. The decrease in cash flow from operations was primarily attributable to an increase in days sales outstanding, or "DSO". Total DSO increased from 71 days as of December 31, 2003 to 76 days as of March 31, 2004. DSO increased due to the conversion of ISI's accounting system into the Company's accounting system, which was completed during the quarter. In addition, the Company experienced some delays in the receipt and processing of subcontractor and vendor invoices which affected the billing and collection of these costs. Contract receivables increased $21.1 million for the three months ended March 31, 2004. Accounts receivable totaled $244.0 million at March 31, 2004 and represented 49.1% of total assets at that date. For the three months ended March 31, 2004, net cash used in investing activities was $685,000, which was attributable to purchases of property, plant and equipment. Cash provided by financing activities was $277,000 for the three months ended March 31, 2004. On December 19, 2003, the Company entered into an amended and restated credit agreement related to our Credit Facility. This current amendment and restatement, among other things, provides for a new Term Loan B under the Credit Facility in the amount of $150.0 million with a maturity date of December 31, 2010 and the extension of the maturity date of the revolving loan portion of our Credit Facility to December 31, 2008. In addition, the 2003 Amended and Restated Credit Agreement permits the Company to raise up to $200.0 million of additional debt in the form of additional term loans, subordinated debt or revolving loans, with certain restrictions on the amount of revolving loans. All borrowings under the 2003 Amended and Restated Credit Agreement are subject to financial covenants customary for such financings, including, but not limited to: maximum ratio of net debt to EBITDA (as defined in the 2003 Amended and Restated Credit Agreement) and maximum ratio of senior debt to EBITDA. For the period ended March 31, 2004, we complied with all of our financial covenants. Historically, our primary liquidity requirements have been for debt service under our Credit Facility and 12% Notes and for acquisitions and working capital requirements. We have funded these requirements primarily through internally generated operating cash flow and funds borrowed under our existing Credit Facility. At March 31, 2004, total debt outstanding under our Credit Facility was approximately $153.7 million, consisting of $149.6 million of Term Loan B, and $4.1 million outstanding under the revolving loan portion of our Credit Facility. The total funds available to us under the revolving loan portion of our Credit Facility as of March 31, 2004 were $129.0 million. Under certain conditions related to excess annual cash flow, as defined in our Credit Facility, and the receipt of proceeds from certain asset sales and debt or equity issuances, we are required to prepay, in amounts specified in our Credit Facility, borrowings under the Term Loan B. In addition, we are scheduled to pay quarterly installments of approximately $375,000 under the Term Loan B until the Credit Facility matures on December 31, 2010. As of March 31, 2004, we did not have any capital commitments greater than $1.0 million. 18 Our principal working capital need is for funding accounts receivable, which has increased with the growth in our business, and the delays in government funding. Our principal sources of cash to fund our working capital needs are cash generated from operating activities and borrowings under our revolving Credit Facility. We have relatively low capital investment requirements. Capital expenditures were $685,000 and $653,000 for the three months ended March 31, 2004 and 2003, respectively, primarily for leasehold improvements and office equipment. We intend to, and expect over the next twelve months to be able to, fund our operating cash, capital expenditure and debt service requirements through cash flow from operations and borrowings under our Credit Facility. Over the longer term, our ability to generate sufficient cash flow from operations to make scheduled payments on our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside our control. OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS We use off-balance sheet financing, primarily to finance certain capital items. Operating leases are used primarily to finance computers, servers, phone systems, and to a lesser extent, other fixed assets, such as furnishings. As of March 31, 2004, we financed equipment with an original cost of approximately $18.3 million through operating leases. Had we not used operating leases, we would have used our existing Credit Facility to purchase these assets. Other than the operating leases described above, and facilities leases, we do not have any other off-balance sheet financing. INFLATION We do not believe that inflation has had a material effect on our business in the three months ended March 31, 2004. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have interest rate exposure relating to certain of our long-term obligations. The remaining $1.9 million of our 12% Notes have a fixed interest rate of 12% and are callable on or after May 15, 2004. The interest rates on both the Term Loan B and the Revolving Loan Portion of our Credit Facility are affected by changes in market interest rates. We manage these fluctuations in part through interest rate swaps and by focusing on reducing the amount of outstanding debt through cash flow. In addition, we have implemented a cash flow management plan focusing on billing and collecting receivables to manage our debt. A 1% change in interest rates on variable rate debt would have resulted in our interest expense fluctuating by approximately $368,000 and $43,000 for the three months ended March 31, 2004 and 2003, respectively. As of March 31, 2004, the fair value of our interest swap agreements with a notional amount of $10.0 million resulted in a liability of approximately $118,000 and has been included in other current liabilities in the accompanying unaudited condensed consolidated balance sheet. ITEM 4. CONTROLS AND PROCEDURES Our management, with the participation of our chief executive officer and chief financial officer (our principal executive officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2004. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2004, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. . 20 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS We are involved in various legal proceedings in the ordinary course of business. We cannot predict the ultimate outcome of these matters, but do not believe that they will have a material impact on our financial position or results of operations. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE ITEM 5. OTHER INFORMATION NONE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS 4.1 Anteon International Corporation Supplemental Retirement Savings Plan (incorporated by reference to Exhibit 4.1 to Anteon International Corporation's Registration Statement on Form S-8 filed December 30, 2003 (Commission File No. 333-111631)). 4.2 Anteon International Corporation Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to Anteon International Corporation's Registration Statement on Form S-8 filed March 8, 2004 (Commission File No. 333-113401)). 31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 B. REPORTS ON FORM 8-K On February 19, 2004, the Company furnished in a Current Report on Form 8-K under Item 12 thereof a press release and financial supplement relating to the Company's financial results for the quarter and year ended December 31, 2003. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ANTEON INTERNATIONAL CORPORATION Date: May 6, 2004 By: /s/: Joseph M. Kampf ----------------- ---------------------------------------------- Joseph M. Kampf - President and Chief Executive Officer Date: May 6, 2004 By: /s/: Charles S. Ream ----------------- ----------------------------------------------- Charles S. Ream - Executive Vice President and Chief Financial Officer 22
EX-31 2 kampfexhibit31.txt KAMPF CERTIFICATION Exhibit 31.1 Certifications I, Joseph M. Kampf, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Anteon International Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused each disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 6, 2004 By: /s/ Joseph M. Kampf ------------- ----------------------------------------- Joseph M. Kampf -President and Chief Executive Officer EX-31 3 reamexhibit31.txt REAM CERTIFICATION Exhibit 31.2 Certifications I, Charles S. Ream, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Anteon International Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused each disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 6, 2004 By: /s/ Charles S. Ream ----------- --------------------------------------------- Charles S. Ream - Executive Vice President and Chief Financial Officer EX-32 4 kampfexhibit32.txt KAMPF CERTIFICATION Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Anteon International Corporation (the "Company") on Form 10-Q for the quarterly period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph M. Kampf, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 6, 2004 By: /s/ Joseph M. Kampf ----------- ----------------------------------------- Joseph M. Kampf - President and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Anteon International Corporation and will be retained by Anteon International Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 5 reamexhibit32.txt REAM CERTIFICATION Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Anteon International Corporation (the "Company") on Form 10-Q for the quarterly period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles S. Ream, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 6, 2004 By::/s/ Charles S. Ream ----------- ------------------------------------------- Charles S. Ream - Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Anteon International Corporation and will be retained by Anteon International Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
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